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tonight on the "kudlow report." when onion trading was outlawed, price volatility got even worse. i'm serious. is there a lesson in this for m the trading commodityies chief who wants to latent fingerprint trading? we have an exclusive interview with mr. gensler. can you tie two bricks together and make them fly? that's the microsoft yahoo search deal. we'll debate it. former presidential candidate steve forbes talks about washington threats to the economy, return of sports march to market for banks and the king dollar and investment outlook. the summer rally still holds a high ground even despite today's attack from china. fasten your seatbelt, everybody,

t "the kudlow report" begins right now. good evening, everyone. i'm larry kudlow. welcome back to "the kudlow report," where we believe free market capitalism is the best path to prosperity. oil prices plunged by almost 4 bucks or nearly 6%. they closed just over $63 a barrel. motorists and middle america cheered, i could hear them. it must have been those dreaded speculators driving down prices. me, i love traders and speculators of all kinds. they're my favorite capitalists. i'm so puzzled my good friend, gary gensler a regular contributing alumist to this program now the commodity futures trading chairman, he's on the warpath against those very same traders. after another day of dramatic hearings at the cftc, we are very 4th to have mr. gentler as an exclusive guest to tell us

what he's dreaming up. first, anson pearson is going to set the table for all of us, onion, oil, everything, and then mr. gensler will come on. hello, hampton. >> good evening, larry. day two of the cft hearings on those wall street speculators ended begoldman sacwith goldman jpmorgan endorsing those deals that there should be exemptions for swaps dealers to help buy and sell derivatives and the swaps dealers and end fund clients have come under fire from wall street and some regulators after last year's oil price spikes. skeptical about swaps dealers at major banks being passive mechanics. >> i don't see a goldman sachs swap desk or jpmorgan swap desk as a passive mechanic, and the billions of dollars of transactions you do as passive

mechanic or billions of dollars of profits or billions of dollars of compensation would be a passive mechanics. >> it's absolutely the case we do play a major facilitating role for hundreds if not thousands of clients around the globe. it is a complex business, hedge powers with futures, power with natural gas, et cetera. we have to have some language where buy we explain to each other what do we mean by intermediation. >> and creating a mechanism for setting limits and who should be required to follow them, two big questions still to be answered. >> all right. hampton. thank you very much. here is the chairman of the commodity futures trading commission. mr. gary gensler, mr. chairman, welcome back. >> good to be with you. >> let's begin, oil fell almost four bucks today, was it those dreaded speculators and traders? >> larry, speculators have been in markets for years and facilitate hedgers, whether

farmers, ranchers, oil producers, the american public discovering prices and hedging risk, it's also appropriate under our statute to make sure no one trader has such a significant concentration in the market that markets become less than fair and orderly. >> you're basically waging war on them. you want to limit their trading. i want to ask you from last year's cftc commission study which kind of exonerated traders saying the big swing in oil was supply and demand there. was a little niche in there reported by today's "wall street journal" editorial page onion trading was outlawed and the cftc said the outlawing of onion trading, the ultimate limitation created more volatile prices. do you worry if you limit the trading you're actually going to make oil price volatility worse? >> our mission is to make sure markets are fair and orderly for the american public. it matters to the american

public. it matters these prices are set and there's in telling gri tin that market. we're trying to promote that, not limit that, just that no one trader could have such a significant cons trainings the markets to have undue distortions in the market. >> how do you judge what is something called excess speculation or excess trading? how can you judge that? what is the bench mark you're thinking of? >> that's why we're going through these hearings, if we go forward, rule makings, i was very encouraged exchanges, chicago mercantile exchange, int inter-continental exchange came yesterday, many consumers and producers, today, we had major banks in. there seems to be support. there seems to be debate how to set the limits and who should set them although we have had lively discussion on that. >> i know some people think these markets are rigged, i know that. i don't personally believe that

and don't reckon you believe that, too. let me ask you on the issue of traders and speculators and so-called position limits you're looking at. you had this boom in the last year, first half of 2008, phenomenal boom, speculators, tra traders are actually short, trying to bring prices down. the very same group of traders crashed prices from $150 down to 30 something. how can you possibly tell they are the problem and position limits or trading limits would be the solution, in other words, what went up came down. i assume it was the same group of people trading. something changed here but didn't seem to be the traders. >> larry, i was stuck the first week of my job, what does our statute say written in 1936. it says the fdic shall set position limits. i work for the american public in this job and believe we should follow our statute. we set these limits in

agricultural commodities and other finite supply contracts and energy. i asked the question, why is it we do it in corn and wheat and not oil and natural gas. >> or don't do it in onion, onion prices are more volatile according to the paper. >> onions don't have the benefit of trading on futures exchange. >> let's take that point. i'm being serious, i don't mean to sound facetious, you're too good a friend. in all seriousness, is it more trading and more liquidity including index funds 0s or sponsorship, the more liquidity the better makes it more efficient and resilient? isn't it really? that's what troubles me in the approach you're taking? >> we agree more liquidity is best for the market. where we might have a difference is if one trader had half the market, would you say that's more liquidity or less? >> you know that's not the case. what's the number one trading position?

the percentage of market share? >> we showed the public information yesterday that in the natural gas markets there have been traders allowed to be as high as 33% of the market. those natural gas prices swung wildly, and they came crashing down. it's hard for me to find cause and effect. what about alternative explanation? supply and demand? >> larry, larry -- >> expectation of future economic growth affect the demand for energy or for that matter, as my frepd, steve forbes will talk about in a few moment, expectation of future of dollar, dollar crashes, oil prices rocket, dollar goes up, oil prices goes down. it seems to me those fundamentals are more important than trading limits. >> i think there are many effects in market. our job is not to set prices at. it's to insure fair and orderly markets.

we seem to have fair concurrence and agreement from exchanges and many major financial institutions to do what we do in the agricultural markets. i believe it will promote liquidity, speculators needed in the marketplace. the only question, is there some size that gets so large that could be not only in clear skies but in stormy markets affect markets. >> let me ask you, yesterday's papers were full of reports the cfdc has a new study coming out that will somehow contradict last year's study. there's a lot of skepticism of that. i believe you will go by the actual data. can you help us on this? why has this changed and this year's study disprove last year's study exonerated the traders, supply and demand changed, economic expectations and currency changed. wh what's new here? what's the evidence that might leadtu create new limits. >> yesterday, i thought the

reports in that one newspaper were premature and in fact inaccurate. now, let me answer your question about what we're doing. we're trying to bring greater transparency to the market. we're going to break down some of the data we put out weekly and show it how much swap dealers have and hedge money and break it out to traders. and second index investment in these various markets and put the data out and people can draw their own conclusions. we believe it's important to put that data out. >> do you think the new data will disprove last year's conclusion that it was in fact supply and demand, guesses about the future economy and currency sni those are basic conclusions. do you think that will change. >> larry, as i said yesterday, none of the four commissioners including myself have seen the

data. >> how do you know you need to limit? >> that newspaper report was inaccurate. >> i understand. it was the "wall street journal," let's out them here on the show. the basic premise i'm making is this, if you don't know the data has changed and report's conclusions changed we could assume the supply and demand conditions and the questions about economic growth and so forth still hold, and therefore the traders and so-called speculators have nothing to do with it. are you worried you will lunch into trading limits with no data underneath those conclusions? >> our job is to insure that they're fair and orderly markets. we're doing that. congress said we shall set position limits. we're looking at that very seriously through this hearing and we believe we should move forward, have more hearings, if we have rules, get public comment on that. there will be plenty of data and i'm sure i will have time to be back on this program. >> you're terrific to come on and know you have had very busy

days. do you have any sense when this new report will come out from the cftc? >> timing of it, i hope in august. >> when do you reckon you will make your decision on the position limitations. >> well i -- stay tuned. >> stay tuned for more. all right. chairman, thank you very much. >> good to be with you. >> you heard it. very interesting. do energy markets need limits. that is the question tonight. david goodfriend and steve forbes will debate all these propositions when we return. by the way, microsoft made a search deal with yahoo today. formal announcement. if you tie two bricks together, can you make them fly? a lot of people are skeptical this will help either company. we'll be right back. i have to tell you, i'm unconvinced. i love traders and speculators and i love unfettered capitalism. fithe same tools the pros use,

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do energy markets really need trading unions? what about onions. and the co-host of the serious radio show "left jab" and my friend steve forbes, presidential candidate and still president and ceo of forbes. he's the co-author of a spiffy book i am reading called "power ambition glory," all about history. speaking of history, steve forbes, you heard, both of you yemen heard the interview with mr. gensler, a really smart guy with a lot of wall street trading experience. what's your action, mr. forbes? >> i think they have to prove the markets are volatile and manipulated by a handful of traders. oil is not an exotic commodity only a few people trade with. oil went berserk in terms of price limits and ups and downs

when the federal reserve went berserk in its monetary policy. there's a traditional relationship between the price of gold and price of oil over the decades. rights now, it's pretty much within range. when the federal reserve tightened up last summer, i don't know whether they did it deliberately or not, you saw the dollar strengthen and saw oil crash. >> dave, good friend, i asked gensler several times, really, supply and demand, steve forbes mentioned the currency factor very important, monetary policy, expectations of future economy, those were the things fingered by last year's cftc report, which exonerated traders and so-called speculators and really, mr. gensler did not give me a clear response about that. i want to get your reaction. why do we think we know traders are to blame when in fact the data show otherwise and there may be very simple supply demand and currency reasons for these price swings? >> here's the data most people

in the general public look at. on the one hand, you mentioned supply and demand. both of you are real free marketers, i might disagree with you but i respect your knowledge. both will say in a free market supply and demand govern the pricing would be. if you look at the oil market today, we have the greatest supply on hand than we had in 20 years, more supply on hand than 20 years. and the lowest -- and the lowest demand in ten years, and yet the price of oil per barrel went from $35 to just over $70 in a few months. people look at that and say this market is not functioning the way a true market, the way a free market another, like the two of you want. don't take my word for it. look at industries, the industries that rely on america are pushing to end the loopholes like the airline industry, like

the trucking industry, like are you ready for this one? the refining, oil refining industry. >> what enron loophole? you're sort of confusing this. give me one enron loophole. if there's a loophole against the law, why not close-knit what does this have to do about the price of oil. >> i'm not proud of it, the president i worked for president bill clinton signed at the end of his administration a bill pushed by enron that allowed certain trading and derivatives to be deregulated offshore. as a result, from that point forward, you can plot this on a graf, put it on the screen. >> we had huge swings in oil. >> you can show disparity between spot markets the real thing and what warren buffet called these financial instruments of mass destruction, the derivatives. >> oh. all right. i appreciate that. by the way, i thought bill christianity w

clinton was a pretty good president in some respects. i'll go back to steve forbes. we had massive swings in energy for years. right now like today, oil price dropped four bucks, down to $63. i don't know if they're going to 40. you can find analyst whose think they are and find distinguished people like boone pickens who think they're going to 100. the production and supply and inventory numbers came out today, they're very big and shot the price down. that's what should happen and it happened. aren't people guessing about the future economy? is there a global recovery, american recovery? fate of u.s. dollars value. isn't that the great guessing game in markets? why do we think this one's rigged? >> that's the thing. if people really felt the economic recovery is going to be very slow, you're not going to have rapid growth, then that oil price will come down, just as natural gas prices come down anyway. there's a huge glut out there. you saw this same kind of volatility in the 1970s, when

you had bad monetary policy, people didn't know what the dollar was going to be worth, what the economy would do in that crazy period. as a result, you saw oil go up to 35, $40 a barrel, as low as $10 a barrel, started the decade, late 60s at $3 a barrel. that kind of volatility is a reflection of a bad monetary policy and anti-economic growth policy. we've seen this movie before. >> the cftc should try to get some sort of dollar anchor. >> strong stable dollar and volatility in oil would go away. >> another point, dave, i don't hear anybody refer, you referred to the swing up from 30 back to friend. you may be right on that although it may go back to 40 for all we know. people are trying to outguess the state of the world economy. that's a tricky call. i think you will acknowledge that. last year in the second half of 2008 oil went from 100 bucks to 30 bucks, i didn't hear anybody

blaming speculators or traders, just like i asked gensler today when the price of oil fell four dollars today, i could hear middle america cheering because it will translate into cheaper gasoline. we can't tell about these things, that's the nature of markets. they move up and down. why are we blaming traders and oil. >> it would be ridiculous to point to one variable in the entire economy and say that's to blame. i have to tell you, you cannot overlook the political element to this. we're talking about economic concepts. i agree with everything said as important variable. the political variable is this. suppose i say to the two of you free market guys, guess what? tomorrow we will double the tax on everybody. we will double sales taxes, you'd have, you'd be outraged, right? yet the increase in the price of gasoline is a regressive tax on the poorest people in the economy. by the way, interesting point, churches have gotten involved in this debate and supporting eliminating those enron

loopholes because they feel it's a a moral issue. >> why don't we have price controls, steve forbes? i think david is on to something here. the political class wants cheap oil. actually, they really don't because of the carbon issue. will leave that aside. they know middle america wants gasoline closer to $2 than to $4. doesn't this lead to price controls, this kind of thinking? >> short term it did. we tried that in this 1970s and saw what it got us. if they really want cheap oil, how about drilling offshore? how about doing more. >> drill drill drill. >> no. >> and all of those things. >> steve's for it. >> and the prospect of future supply there would bring the price down. >> i have to say -- please let me jump in here, larry. >> drill drill drill, david, good friend. drill drill drill, nuke nuke nuke. >> supply is at record highs. wrong wrong wrong. if you think that drilling is the answer, why is it that with the record supplies the market

is thatting. >> i markets anticipate, try to anticipate the future. if people think growth will come, it will go up. >> i could go 20 more minutes. maybe we should. david, good friend, thank you. steve will hang out because he has a lot more work to do on investments in washington and switch to market accounting. now to mr. pearson again. he has details on financial services reform from chairman barney frank. you're a busy guy. >> we try as the house financial services committee tries to craft its financial regulatory reform. good news for companies that already have industrial loan companies. financial services chairman barney frank says firms like harley davidson and general electric will be able to keep them and grandfathered into financial regulatory legislation. frank says it's hard fochange the rules for those firms in the

middle of the game. in recent years, both home depot and wal-mart have been unsuccessful in getting approval from congress to set up ilcs, depending on the final version of the regulatory firm, they and others could perhaps benefit. the house expects to act on a comprehensive regulatory reform plan sometime this fall. >> thank you for that update, hampton. an update on the real deal with dennis kneale. coming up, we have joe and dennis paulson. they will debate the summer rally and the china attack and talk about yahoo and microsoft. two bricks that can't fly. all that and more. please stay with us. we are "the kudlow report."

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bataglia. back to the summer rally a very important theme for this program. here to talk about it is joe bat t aglia and people talk about pullbacks and we had an attack from china and we will talk about that later. here's my opening thought and question. seems the market is holding up real well after the profit out of the blues the economic fundamentals and profit

fundamentals are getting better, not based on sand, we're shifting to fundamentals, what is your thought. >> i agree. you think about the last three months, not just two weeks, the last three months, news from wall street things are getting better and repaired. spreads come in from wall street and stocks rallied and stayed led bicyclely call areas, main street news, almost everyday a report better than expected. the fed beige book today was very encouraging book for example. finally earnings season better than expected and the second earnings season is better than expected. there's a barrage of good news and i think there's fundamental reason and underpinnings to this rally going on, what it's fighting against is continued dominance and doubt that it's ended but the information flow says it is. >> joe b. you are a doubter, are you not? >> i am. >> we basically returned to

where we were in november. the reason we returned there because the federal reserve successfully avoided a complete market meltdown. what has been described as credit spread is the federal reserve forcing credit guarantee in the credit markets so bad banks stay bad. they put a wedge in the gearing so the asset spiral stops at the federal reserve level and why their balance sheet balloons. in all the excitement. >> let me ask you about the bonds for a second. >> sure. >> even a banker can make money at a zero interest rate and steep curve. i think you have a point and why i still love banks, find a bank you hate and buy it, they're all going up. we had a very good corporate bond rally today. bwa rallied up in price and rates fell by 10 basis points. this has been happening. you're so small now, the difference between corporate and treasury rates is so small, you're going back to last august

when the s&p was something close to 1200, joe. isn't that a good leading indicator where stocks should and are going to go? >> part of it has to do with the fact the federal reserve has basically said they need to stay at zero because the economy is not responding. another part of it is that those spreads were indeed too wide because you're in a panicked mode. the third element, there's great demand. we've been advocating them a long time. the trade has been moving corporates away from treasury. the hard work starts because we're doing treasury auctions by the minute getting worse and worse because the world is having trouble taking on more of our debt at this time and the economy is not showing signs of life. the earnings celebration everyone is jumping up and down about only because the sequential earnings is better still 30% below where they were a year ago, you look at the earnings power of s&p at $55, at best, that's a fair value in an economy flatlined. >> jim paulson, another good day

today. the capital goods investment went up, orders not the shipments but the orders, which this is leading indicator of business investment. the three month rate of change, we may have a chart. do you agree with joe the movement doesn't confirm move from recession to recovery? >> joe, the points you make, i think, are valid but things we always do when we're at the bottom of the recession. >> the problem is getting out of the recession. >> you always have the fed in support at the bottom of recession, fiscal stimulation. this is no different. on top of that there, are lot of reports, capital good orders non-defense coming up, housing numbers showing a clear bottoming we haven't had previously, unemployment claims show a clear end recession signal. economic indicator showing a recession ending signal, you have a number of things from main street, too, tell you the stuff we put in place is indeed

working. >> yes. you also know an economy that doesn't grow any better than 1% on an analyzed basis does not generate new jobs. with 20% unemployment rate all in and 20% mortgages under water you can't lift this economy up and that doesn't take into account the default coming -- >> just for arguments sake, joe, what if it grows at 3% in the next 6 to 12 months, would that change your view? snoou. >> you might get to a point it doesn't get any worse but it's certainly not a sign of meaningful recovery. >> you will not buy it either way. jim paulson, let me go back to this issue, corporate bond action back to last august, pre-lehman brothers. we closed at 975 today on s&p, down slightly four points, closed 9,070 on the dow, off a minuscule 26 points. can we get to 1,000 on s&p and can we get to 10,000 on the dow?

>> i think we're close enough to the thousand level right now. it seems to me if we get any decent reports in the next week, we're going to go up and at least challenge that, larry, i'm hoping we do break through it. i think we will have to break 1,000 on the s&p to look into dow 10,000. i think there's decent odds. >> what's your favorite investment now jim. >> industrials. i like the manufacturing the best. even the fed in the beige report said they see early signs of improvement in the manufacturing segment. >> joe b., where would you go tomorrow morning. >> the bond market on the corporate municipal side offers better than treasuries, and you must by good companies that have good balance sheets and dividends through the times ahead. >> is there a quality company you want to recommend. >> no. it has been consumer health care and staples that can ride through a significant stagnation

coming through in our economy. >> thank you very much. is china a wrinkle or even attack on this summer rally? later on, we look at yahoo and microsoft. can two bricks fly? "the kudlow report." welcome to progressive.com. you must be looking for motorcycle insurance. you're good. thanks. so is our bike insurance. all the coverage you need at a great price. hold on, cowboy. cool. i'm not done -- for less than a dollar a month, you also get 24/7 roadside assistance. right on. yeah, vroom-vroom! sounds like you ran a 500. more like a 900 v-twin. excuse me. well, you're excused. the right insurance for your ride. now, that's progressive. call or click today.

the question now, is china going to be a big attack dog for the summer rally. its stock fell 5% on the shanghai market. it brought down commodities, energy, gold with it. some people got real nervous about it. but our markets were barely off a good sign of health. we'll talk chan and other things. we have andy bush. and mike holland of holland and company a director on the board of the china fund and i think also the taiwan fund if i'm not mistaken. we also have steve forbes with us. mike holland, good to see you. what's your take? is china going to cripple the summer rally? is china going to bring commodities down? what's going on. why did it crack up 5% today. >> three questions, i will go with the last one first. the kerp today was there was

indication from the authorities in china they will stop the crazy lending going on. they had an explosion in bank loan, actually andy bush did a great piece on cnbc.com on this subject. the record number of loans made, probably 20% have gone into the stock market and property speculation. they're talking about tamping things down. end of the story, i don't think they're going to. >> how about a second end to the story. should they? a lot of people have been talking about a bubble in china, pouring stimulus in, right? a lot of the stimulus has gone into the stock market and a lot has gone into forced bank lending, which is guaranteed by the government, by the bank of china, kind of like fannie mae and freddie mac. i hope that story turns out better than fannie mae and freddie mac did. >> both are true but that's only a part. when we've been speaking to companies in china, not government entities, not banks, companies who make things for

people and the indigenous population is buying things, 8% growth a lot is with shovel ready real stuff the stimulus package got done. they showed us how to do it right. >> steve forbes, you heard mike a china expert of sorts, serves on investment boards. do you agree with him. >> i think china long term has great prospects, especially if they do this neat trick of starting to develop the rest of their economy and not rely so much on exports. that's been a lopsided growth sken scenario and also good news long term politically, the way you develop internally, you rely more and more on entrepreneurs, developing a growing middle class. that's good long term. >> andy bush, one thing i really like, he's not ready. you, too, steve moore. let me put this question to you. china has low tax rates on capital, low tax rates on business.

their tax rates are lower than ours. i don't know if i like the sound of all this pump priming going on but i do like the way they treat capital. >> if they put in a flat tax like hong kong has, they wouldn't need much system thousand get 8 to 10% growth rates. >> they got rid of a chunk of retail taxes for consumers and got rid of capital gains tax. >> that's the stuff i think fundamentally will create a stronger economy. mike, your advice is not worry about the china story, it won't crack up or interfere with our summer rally. >> the shanghai exchange was up 83% going into last night. they're in for a correction and won't screw us up, we weren't up 83%. >> real quick, you're coming back, maybe we will find andy bush or not. >> we just had this hillary clinton state department meeting, didn't see much coming out of it. what about the currency battle

between the u.s. and china? >> i hope the fact nothing came out of these meetings is a good thing. trying to practice protectionism through currency manipulation is a bad thing. i think stability between chinese currency and u.s. dollar is a positive thing. i wish we'd get off this track of trying to get forced revaluations. we had it with china, we should get it back again. >> if they revalue the uron it might deflate the china boom or recovery. >> not going to happen. >> could happen. >> not going to happen. >> it's a distorted thing. we played this movie with japan starting 35 years ago. it has no long term impact but short term it's very distorted. i hope we don't do it again. >> we'll talk about the summer rally and threats from washington d.c. on taxes and health care and maybe a vicious new market reform.

i thought we finished that one off, like a bad penny, keeps coming back. steve forbes, mike holland, maybe andy bush, we are "the kudlow report." you have questions. who can give you the financial advice you need? where will you find the stability and resources

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we are back with steve forbes, and mike and andy bush has wrestled the camera into submission. you can catch up. steve forbes, when the financial accounting standards board moderated to market and stopped forcing banks to score loans in a distressed market, that was trigger of this fabulous bank rally just about doubled since early march. now, there's a story running out the green eye shades will go back to this and even more so. can you shed any light on this? this is like the revenge of the in other words but it could have serious consequences for stocks and certainly bank stocks. >> yes. this is like the monster movie, where the monster keeps coming out of the swamp for bad sequels. the mark to market was modified in april. the hearing they had in congress on march 12th was the turning point when markets really rallied, congress made it clear

this thing had to be changed but they're now coming back with their allies in european to not only bring that mark to market but have it apply to everything else, loans on the bank which would be devastating. i hope congress weighs in before they get too far on this and say know. they should go all the way and suspend mark to market for several years so we can rebuild this system and get this credit system truly working again. >> andy bush, i think the summer rally is for real, the leading indicators on the economy and we had good numbers for orders, another leading indicator but you have washington threats, steve forbes putting mark to market back on the table. health care, you think it's dead, i'm not sure it's dead in washington and myriad tax threats. andy where you do stand on this summer rally? you haven't had a chance to weigh in yet.

>> i think it's real, the fact we're pushing a thousand. money is pushing back in that was on the sidelines. it definitely has oomph. any time you have something that goes up 20% is good. you mention health care, i bring up cap and trade, other policies, as they have with the enthusiasm of congress to go after these things, the stock market rallied a bit, hasn't it? when they come back to the front in september, i think we will run into problems with this rally. people will be worried again, tax hikes, the biggest tax hike of all is cap and trade program. >> mike, besides investmenting in china what are your favorite investments? >> this past week, i took advantage of the give away u.s. treasury does with inflation, protected securityies and tips e talked about them before. back to andy's comment, the 12% move we had in the last several days has been in large point of

some people's point of view because of the failure of the bush -- obama initiatives, if they come back to haunt us the next several months, we could give up this gain. >> is there a correction pullback, i would regard is healthy, how big a correction is coming in your judgment. >> 10 to 15%. look where we were in march and now, the end of the world in march and now euphoria, 10 to 15% would be easy one. >> would you buy in that correction or sell through it? >> i would be -- i'm an owner and buyer. we've seen the worst and coming back, you have to be patient but i'd be a buyer. >> steve forbes, can the blue dog democrats beat obama's government sponsored government insurance plan taxes spending and borrowing and all? >> if they get the vote postponed until september, i think so. i think these people will get an earful from they're constituents on cap and trade and for the

first time these blue dog democrats will bite instead of just bark, a good thing for the economy and political prospects for obama the more his initiatives fail in congress the more popular he will become. >> that's fascinating. we have bill clinton and john f. kennedy democrats in the party. steve forbes with all your concerns about washington, do you buy the summer rally? do you think we're heading for an economic recovery. >> there will be a recovery, the question is how vigorous will it be and i'm worried about small market and consumers and credit, that part not working real well yet if we get recovery there we will see 6 to 8% not 3 to 4%. >> we will be right back and talk microsoft and yahoo. geico's been saving people money on car insurance for over 70 years.

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one of the big stories today is microsoft and yahoo are tying each other together on the search engine story in order to take on google. i want to talk about this. john forbes, senirom fortune, s writer. and paul. please forgive me, i used your line all show, you can't put two bricks together and make them fly. i love that. now, you can explain it. >> the two bricks in the story here are obviously yahoo and microsoft when it comes to search, put the two companies

together and combine the respective shares of the marketplace in the u.s. you end up with 25% share small compared to google and world-wide, 8%, and even smaller compared to google world-wide. and they really are nowhere in the marketplace targeting. >> google has about 65% market share searches. as paul said, yahoo and microsoft together have about, what, 25%. does this deal work? there's so much skepticism about this deal, microsoft and yahoo. >> absolutely. in search, the more people you can get to use it, the better it becomes. microsoft has knocked effectively triple its market share. the technology has to be good and in the past, hasn't been. at least they're in the game now. in the past it didn't matter how

much technology they had, they didn't have enough users. by pairing with yahoo, they have a chance. >> does technology compete with google. i want to ask something i asked earlierment click to sale. on google, you can click right to sale first. you can't do that on the yahoo version. maybe i'm wrong. compare the google technology with the yahoo microsoft technology. >> the stuff consumers see from the standpoint of search, there isn't much difference, that's part of the problem. reality is why would i change. >> they need to steal from google. i can't look the same, has to be better. i don't think most people looking at it would have any idea anymore what twice as good would mean. google seems to work perfectly good for them. stealing sharist is next to impossible. but deeperecogw ey serve advertisers is a story. this combination is a mess.

yahoo faces advertisers and back end gets done by microsoft and you have all kinds of finger-pointing and integration. >> this is two bricks that can't fly and two turkeys that can't produce. >> i wouldn't 2 that far, i wouldn't count microsoft out just yet. not true tai have no way to gain share. look what microsoft did with fi firefox browser and has plenty of cash especially since they didn't buy yahoo. >> the problem is they have to buy their way in. they won't get anywhere and buying in is short term. >> that's what google does, buy their way into search. >> yahoo got clobbered today. thank you, gentlemen. see you both soon. coming up, more of "the kudlow report." catch me tomorrow morning, 11:00 on "the call."

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